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New Rules for Overtime Pay
Are Based on Salaries, Duties

By

Kris Maher Staff Reporter of The Wall Street Journal

Updated April 27, 2004 12:01 a.m. ET

Are you entitled to overtime pay? For many workers, the answer could change over the next few months.

Last week, the U.S. Labor Department announced the first major reworking of the Fair Labor Standards Act's overtime-exemption rules in 50 years. The new rules provide guidance for overtime eligibility -- one of the most tangled employment issues in recent years -- based on salary levels as well as the duties that workers regularly perform on the job.

"My sense of what it's going to do is provide clarity in an area where it's been incredibly cloudy," says Susan Meisinger, president and chief executive officer of the Society for Human Resource Management, an Alexandria, Va., professional association for human-resources practitioners. She says the organization fields 80,000 calls a year from HR professionals, and that by far the No. 1 question involves whether an employee qualifies for overtime pay.

The new rules are also intended to quell the rising tide of overtime-related litigation. "We are restoring overtime to what it was intended to be: fair pay for workers, instead of a lawsuit lottery," said Secretary of Labor Elaine L. Chao, in announcing the new rules. Ms. Chao also emphasized that the rules strengthen overtime protections for 6.7 million low-wage workers, including 1.3 million salaried white-collar workers who weren't previously entitled to overtime pay.

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Yet how many people will lose their overtime eligibility is still being intensely debated. Many labor groups say the rules will unfairly make more workers exempt from overtime pay. Meanwhile, some lawyers express doubts that lawsuits on behalf of workers who say they have been wrongly denied overtime pay will be much diminished by the clarifications in the rules.

The new rules "will increase the number of workers who are found to be exempt, but there will still be fights," says James M. Finberg, a partner at Lieff, Cabraser, Heimann & Bernstein LLP, a San Francisco law firm. "It will just change the battleground."

Further complicating matters, the new federal rules will have no effect at all in a few states such as California, where employers must follow state overtime rules that are more favorable to workers.

How can you find out whether you'll be affected by the rules?

The best place to learn more about the rules is the Department of Labor's Web site, www.dol.gov/fairpay. Visitors to the site can download hundreds of pages of information or look up one-page fact sheets that discuss how different occupations will be affected. The Web site also provides information on how to file a complaint if you feel you have been illegally denied overtime pay. The department's Wage and Hour Division recovered $212 million in back wages for people during fiscal 2003, a 21% increase over the preceding year, according to the site.

Employers have 120 days to comply with the new rules, so employees should be on the lookout for information detailing company policies on overtime pay by sometime in August. "Employees owe it to themselves to figure out how they are classified," says Johnny C. Taylor Jr., executive vice president, general counsel and secretary of Compass Group USA Inc., a Charlotte, N.C., food-services company with 120,000 employees in North America. Compass Group is a subsidiary of United Kingdom-based
Compass Group
PLC.

Mr. Taylor says Compass Group will be reviewing all of its positions to make sure it is classifying people correctly under the new rules. Some tricky job categories in the past have been in sales, information technology and marketing, according to Mr. Taylor. "I'm pretty certain that some will shift as a result of this, and both ways," he says.

Some key aspects of the new rules:

Blue-collar workers "who perform work involving repetitive operations with their hands, physical skill and energy" continue to be eligible for overtime.

Police officers, detectives, firefighters, paramedics and other so-called first responders are also still eligible.

Workers earning less than $455 per week, or $23,660 a year, are automatically eligible for overtime.

Workers earning $100,000 or more a year are exempt from overtime if they satisfy just one of the so-called duties requirements for exempt employees, which typically include managing other employees or having the authority to hire and fire workers.

White-collar workers earning less than $100,000 but more than $23,660 must meet several duties requirements to be classified as exempt. Yet for many workers, including insurance-claims adjusters and workers in the financial-services industry, it is now easier to qualify as exempt from overtime.

In some cases, companies might find it preferable to push certain employees' salaries above the salary cutoffs to keep them classified as ineligible for overtime, says James M. Coleman, managing member of the Fairfax, Va., office of law firm Constangy, Brooks & Smith LLC.

"An employer would have two choices: raise the salary level or consider converting them to nonexempt status," says Mr. Coleman. Such raises, of course, might actually result in less pay than if the person were suddenly eligible for overtime.